Delayed Full and Final Settlement Payment Not Reflecting in Form 16

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An employee received their full and final settlement payment in October 2021, after returning company assets. They are seeking clarification on whether this income should be declared for the financial year 2020-21 or 2021-22, as it impacts their tax liability. The advice given is that it should ideally be considered income for FY 2020-21, and it's recommended to ask the employer to update the Form 16 accordingly. However, even if reported in FY 2021-22, arrears relief under Section 89(1) of the IT Act can be claimed.

Shivam Gupta

Shivam Gupta (Querist)
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24 November 2021 Hi experts,

My last working day at my previous company was on 7th Mar, 2021.
Due to covid restrictions, I couldn't travel to my base location to return company assets. So my Full and final settlement was on hold.

Finally, I returned the company assets on 30th Sep, 2021 and I received Full and final settlement payment (Feb & Mar salary + leave encashment) on 27th Oct, 2021.
Please confirm, "Should this Full and final settlement payment amount be counted as income in FY 20-21 or FY 21-22"? Thank you.

Thank you.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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24 November 2021 As such it should be considered as salary income for FY 2020-21. But if in form 16 it is shown in FY 2021-22, then you have an option to declare it as per that. So, check form 16 and decide.

Shivam Gupta

Shivam Gupta (Querist)
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24 November 2021 Hi Sir,
Thank you for the response.
It is not present in the FY 20-21 Form 16 which I received in Jun, 21. They have not provided me updated Form 16 in Oct, 21.
I am concerned because if this income shows up in FY 21-22 Form 16, it would attract lot more taxes.
What is your take on this sir, should I ask my employer to get FY 20-21 Form 16 updated ?
Thank you.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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24 November 2021 That would be more advisable. But even if is declared in form 16 of next FY, you will be able to claim arrears relief u/s. 89(1) of IT act.

Shivam Gupta

Shivam Gupta (Querist)
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24 November 2021 Thank you very much Sir for clearing out the doubts.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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25 November 2021 My Pleasure ...

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